You will need to know this number each day, so you'll focus on Contracted ARR in your CRM tool (as opposed to accounting ARR).
Big ARR milestones are $100K (Signal), $1 million (PMF), $10 million (Growth), $100 million (IPO Scale)
🧵: The 10 Metrics for SaaS Startups (an Operator's Guide)
Focusing on the wrong things can kill your startup.
Based on founding and scaling @edenworkplace, here are the metrics that matter most:
You will need to know this number each day, so you'll focus on Contracted ARR in your CRM tool (as opposed to accounting ARR).
Big ARR milestones are $100K (Signal), $1 million (PMF), $10 million (Growth), $100 million (IPO Scale)
Once you get past the Signal stage, your ARR growth is the primary determinant of future success (and valuation).
Strong annual growth rate from Signal to PMF is 4x+ and from PMF to Growth is 2.5x+.
@edenofficemagic grew 11x between Signal and PMF stages.
ACV often starts low for a SaaS company (as your product is not featureful enough for large enterprises) and grows as the company moves upmarket.
ACV is calculated by taking total revenue and dividing it by your number of customer logos.
Most SaaS companies will make ACV growth a focus.
It is fair to increase revenue per customer as you add more value to users in new features, integrations, and products.
@edenofficemagic grew ACV 2.3x last year, mostly through cross-selling new products.
NDR tracks what happens to $1.00 of avg customer revenue 12 months after acquiring the customer.
You want positive NDR, as that means customer expansion more than offsets reduction and churn.
Below are @edenworkplace's cohorts (132% NDR).
A high churn rate always catches up to you, typically in the Growth stage.
"Good" depends on ACV here. Very SMB can be > 30% annual gross churn. Enterprise is typically < 10%.
Generally, a good SaaS company is well north of 60%, and ideally closer to 80%.
Be conservative: include CSM and support costs in COGS, not just product costs such as AWS. Your VCs will be conservative, so you are better off not deluding yourselves.
CAC is calculated by taking sales and marketing cost and dividing it by the number of new logos acquired.
Then divide CAC by avg gross profit contribution of new logos to determine payback.
6-18 months payback is often the goal.
Cash is like oxygen. When you have it, you don't think about it. When you don't, it is all you think about.
You calculate runway by taking cash balance and dividing it by monthly burn.
Typically, startups aim for 24+ months at raise and 6+ always.
Pipeline is calculated as the sum of outstanding sales contracts (not closed won or lost).
To some extent, your pipeline is your destiny.
If you have enough, you will hit your goals. If you don't, you'll miss them.
Watch it closely.
If you keep an eye on them, you'll at least know when you need to course correct.
Follow me @joedubeytldr for more concise lessons on startup building, investing, and decision making.
Onwards + upwards!
More from Finance
I'm lucky to attain financial freedom before 30.
I credit Fintwit for my learnings.
Here's 10 key concepts every investor must know:
1. $$ needed to retire
2. Researching a business
3. Reading annual reports
4. Reading earnings calls
5. Criteria of a multi bagger
(Read on...)
6. Holding a multi bagger
7. Economic moats
8. When to buy a stock
9. Earnings vs cashflow
10. Traits of quality companies
Here's my 10 favourite threads on these concepts:
1. How much $$ do you need to retire
Before you start, you must know the end game.
To meet your retirement goals...
How much $$ do you need in your portfolio?
10-K Diver does a good job explaining what's a safe withdrawl rate.
Hint: It's NOT
2. Research a business
Your investment returns are a lagging indicator.
Instead, your research skills are the leading predictor of your results.
Conclusion?
To be a good investor, you must be a great business researcher.
Start with
3. Reading annual reports
This is the bread and butter of a good business analyst.
You cannot just listen to opinions from others.
You must learn to deep dive a business and make your own judgments.
Start with the 10k.
Ming Zhao explains it
I credit Fintwit for my learnings.
Here's 10 key concepts every investor must know:
1. $$ needed to retire
2. Researching a business
3. Reading annual reports
4. Reading earnings calls
5. Criteria of a multi bagger
(Read on...)
6. Holding a multi bagger
7. Economic moats
8. When to buy a stock
9. Earnings vs cashflow
10. Traits of quality companies
Here's my 10 favourite threads on these concepts:
1. How much $$ do you need to retire
Before you start, you must know the end game.
To meet your retirement goals...
How much $$ do you need in your portfolio?
10-K Diver does a good job explaining what's a safe withdrawl rate.
Hint: It's NOT
1/
— 10-K Diver (@10kdiver) July 25, 2020
Get a cup of coffee.
In this thread, I'll help you work out how much money you need to retire.
2. Research a business
Your investment returns are a lagging indicator.
Instead, your research skills are the leading predictor of your results.
Conclusion?
To be a good investor, you must be a great business researcher.
Start with
1/ Thoughts on Research Process
— Mostly Borrowed Ideas (@borrowed_ideas) September 27, 2021
I was invited to present my research process at a college in the US. I am sharing all ten slides here. pic.twitter.com/z0tjZcogfH
3. Reading annual reports
This is the bread and butter of a good business analyst.
You cannot just listen to opinions from others.
You must learn to deep dive a business and make your own judgments.
Start with the 10k.
Ming Zhao explains it
\U0001f9d0How to Read 10Ks Like a Hedge Fund\U0001f9d0
— Ming Zhao (@FabiusMercurius) May 7, 2021
\u201cFundamentals don\u2019t matter anymore!\u201d I\u2019ve heard this a lot lately on Fintwit.\U0001f644
But, for those who\u2019ve diversify beyond $GME and $DOGE, here\u2019s a primer on what metrics fundamental buy-side PMs look at and why:
(real examples outlined)
\U0001f447 pic.twitter.com/tLlNRvpnDK
You May Also Like
"I lied about my basic beliefs in order to keep a prestigious job. Now that it will be zero-cost to me, I have a few things to say."
We know that elite institutions like the one Flier was in (partial) charge of rely on irrelevant status markers like private school education, whiteness, legacy, and ability to charm an old white guy at an interview.
Harvard's discriminatory policies are becoming increasingly well known, across the political spectrum (see, e.g., the recent lawsuit on discrimination against East Asian applications.)
It's refreshing to hear a senior administrator admits to personally opposing policies that attempt to remedy these basic flaws. These are flaws that harm his institution's ability to do cutting-edge research and to serve the public.
Harvard is being eclipsed by institutions that have different ideas about how to run a 21st Century institution. Stanford, for one; the UC system; the "public Ivys".
As a dean of a major academic institution, I could not have said this. But I will now. Requiring such statements in applications for appointments and promotions is an affront to academic freedom, and diminishes the true value of diversity, equity of inclusion by trivializing it. https://t.co/NfcI5VLODi
— Jeffrey Flier (@jflier) November 10, 2018
We know that elite institutions like the one Flier was in (partial) charge of rely on irrelevant status markers like private school education, whiteness, legacy, and ability to charm an old white guy at an interview.
Harvard's discriminatory policies are becoming increasingly well known, across the political spectrum (see, e.g., the recent lawsuit on discrimination against East Asian applications.)
It's refreshing to hear a senior administrator admits to personally opposing policies that attempt to remedy these basic flaws. These are flaws that harm his institution's ability to do cutting-edge research and to serve the public.
Harvard is being eclipsed by institutions that have different ideas about how to run a 21st Century institution. Stanford, for one; the UC system; the "public Ivys".
